Fundsmith is the fund firm Terry Smith ("Britain's Warren Buffett") founded in 2010, with a discipline of radical simplicity — Buy Good Companies, Don't Overpay, Do Nothing: a concentrated book of 20-30 high-ROCE global consumer, healthcare and tech franchises with near-zero turnover. His annual shareholder letters are famous for wit and common sense; peak AUM topped £25bn.
This is Fundsmith’s report for the first half of 2016. The fund returned 16.4%, beating the global stock market (MSCI World) at 11% and the UK market (FTSE 100) at 6.7%. The manager bought Estée Lauder (a cosmetics company) to complement its existing L’Oréal holding, and sold Procter & Gamble (a consumer goods giant) due to worries about its high-price strategy and frequent CEO changes. It also added to positions in JM Smucker (jams), PayPal (payments), and others. The fund has low fees and very low trading (low turnover), which helps investors keep more of their returns. Worth a read because it shows how sticking with good companies and avoiding unnecessary trades can beat the market.
The fund returned 16.4% in the first half of the year, significantly outperforming the MSCI World Index (11.0%) and the FTSE 100 Index (6.7%). During the period, it established a new position in Estee Lauder (complementing its L'Oreal holding, with a focus on color cosmetics) and closed out its posi
The fund (T Class Acc) versus its primary benchmarks during the reporting period (first half of 2016) is shown below:
| Instrument | Period Return (2016.01.01–06.30) |
|---|---|
| Fundsmith Equity Fund (T Class Acc) | 16.4% |
| MSCI World Index | 11.0% |
| FTSE 100 Index | 6.7% |
| UK Gilts | 7.7% |
| Cash | 0.3% |
Source: Manager commentary table; fund return aligns with the 16.39% for T Class Acc in the Performance Record.
Significant trading activity disclosed in the report (based on "Summary of significant changes" and manager commentary):
| Type | Company | Notes |
|---|---|---|
| New Position | Estee Lauder Companies | Initiated during the period; viewed as a complement to L'Oreal holding, with a focus on colour cosmetics. |
| Liquidation | Procter & Gamble | Fully sold; concerns over its premium pricing strategy and management turnover. |
| Significant Additions | JM Smucker | Largest purchase, cost approximately £226 million. |
| Paypal | Cost approximately £145 million. | |
| Waters | Cost approximately £110 million. | |
| Amadeus IT | Cost approximately £107 million. |
Total purchase cost in the period was approximately £1,764 million; total sale proceeds were approximately £95 million.
| Item | Value |
|---|---|
| Ongoing Charge Figure (OCF) | T Class: 1.08% / R Class: 1.58% / I Class: 0.98% |
| Total Fund Size (30/06/2016) | Approximately £7,059 million (all share classes combined) |
| Turnover | -9.15% (negative due to inflows significantly exceeding trading activity) |
| Voluntary Transaction Costs | £142,900, equivalent to 0.3 basis points (0.003% of average net assets) |
| Dividend (T Class Income) | 1.36 pence per unit (distributed) |
OCF data sourced from the "Ongoing charge figure" for each share class in the Performance Record.
Fund manager Terry Smith (signed) highlighted the following core views for the period:
1. Outperformance vs. Benchmarks: The fund outperformed the MSCI World Index by approximately 5 percentage points and the FTSE 100 Index by approximately 10 percentage points in the first half of the year.
2. Key Contributors and Detractors: The top five contributors were Stryker (+1.79%), CR Bard (+1.60%), Idexx Laboratories (+1.38%), JM Smucker (+1.30%), and Johnson & Johnson (+1.22%); the bottom five detractors were Microsoft (-0.09%), Procter & Gamble (-0.02%), Estee Lauder (+0.08%), Colgate-Palmolive (+0.20%), and Paypal (+0.21%), but none caused significant concern.
3. Rationale for New Position: Bought Estee Lauder as it is a leading cosmetics company, complementing L'Oreal, with a focus on colour cosmetics rather than skincare/fragrance.
4. Rationale for Liquidation: Sold Procter & Gamble due to its insistence on premium pricing in a low-growth environment despite volume declines, and three successive CEOs appointed internally in three years with no sign of a strategic shift.
5. Cost Emphasis: The OCF is only 8 bps above the annual management fee (1%); total cost of investment (TCI) including transaction costs is 1.12%; voluntary transaction costs are just 0.3 bps (0.003%), well below industry levels, with low turnover being key to cost control.